Investors and developers should evaluate the opportunities in African countries on an individual basis, depending on location, asset class and the availability of dollar-denominated rather than local currency payment, delegates were advised at the Africa: Growth and Investments session at MIPIM earlier this month.
Charles Hecker, senior partner, Control Risks, said that comparing risks and returns in Africa with Europe or the US is “an exercise in futility” and proposed that instead investors should look at “which markets are attractive and worth looking at and also what their future prospects are.”
It was a view backed by Greg Pearson, co-founder, Grit Real Estate Europe, who added that his company had received some criticism for investing in a range of asset classes and markets, rather than focusing on a specific region or property type.
“We don’t feel that’s the right approach,” he said. “Instead we look at opportunities based on what is driving a country’s economy and also what will attract international occupiers, so that we are not exposed to the local currency.”
Samuel Kariuki, managing director of retail development specialist Centrum Real Estate, said that each African country has its own requirements and that East Africa remained a strong market for shopping centres, so long as they have a good tenant mix and the right entertainment and food offer.
“Most malls are anchored by a supermarket, in particular South African group Shoprite,” he said. “But to make sure that people visit your mall, the sub-anchors are also very important, as are retailers who appeal to the mass market. If you have the right mix, the shopping centre will perform strongly.”
Looking at Nigeria, Bolaji Edu, CEO, Broll Property Services, added that despite claims of over-supply in the offices and retail sectors in the major cities, in fact well located assets in good locations are achieving high occupation rates.
“Investment success remains dependent on the fundamentals,” he said. “If Grade-A office buildings are in the right place and with good amenities, such as parking, then they will be successful. Those that have been struggling or remain unoccupied tend to have poor basics.”
RPA
Perspective
Beyond the obvious starting off point of South Africa, Kenya’s
retail sector is diversifying with the entry of new players and international
brands into the market. This is despite the retail sector growing at a
“lethargic rate” compared to economic growth in the East African hub in 2018.
The retail sector has been impacted by increases in taxes and government regulations following the drawn-out elections of 2017, despite the Kenyan economy growing at a fast rate. GDP is expected to grow by 5.9% for 2018 overall, on the back of improved weather conditions and a stabilising macroeconomic environment.
These are some of the key insights contained in the latest report by Broll Property Intel, the research division of property services group, Broll.
Head of Research and Valuations at Broll Kenya, Vivian Ombwayo, who contributed to the report, said: “While Kenya recorded strong economic growth in 2018, the retail sector grew at a slow rate. Increases in taxes and business regulations as a result of Kenya’s new Finance Act (2018) may have played a role, but it remains to be seen to what extent this act will affect the retail and broader real estate markets.”
The Finance Act was signed into law in September 2018. One of the big changes is the introduction of 8% VAT on petroleum products, which was previously VAT exempt. Ombwayo says that the increase in fuel costs is likely to induce a ripple effect on food and other prices. However, a positive for the property sector is in the Real Estate Investment Trusts (REITs) space, where transactions related to the transfer of assets into REITs are VAT exempt.
According to Ombwayo, the growth of aspirational consumers and Kenya’s middle class has influenced Food and Beverage retailers to diversify into Nairobi’s CBD. She also says that international fashion brands such as Hugo Boss and Turkey’s LC Wakiki, as well as French sports retailer Decathlon, have a growing presence in Kenya.
The French supermarket Carrefour is expanding in the country, while South African retail giant Shoprite opened its first Kenyan store in December 2018. Another South African brand, Game, which is owned by US-based global retail heavyweight Walmart, is also expanding as are other supermarket retailers.
Retail development in Kenya is expected to pick up as the country stabilises from a macroeconomic standpoint following uncertainty caused by the country’s drawn-out election in 2017.
Broll’s latest Kenyan retail study reports a shift in rent charges from largely a space occupied basis to either turnover-based rent or a combination of turnover rent and base rent.
